Fuel costs hit Carnival earnings

Revenue yield increases were “more than offset” by higher fuel prices said Carnival Corporation & plc (NYSE/LSE: CCL; NYSE: CUK) Chairman and CEO Micky Arison as the cruise giant reported net income of $206 million, or $0.26 diluted EPS, on revenues of $3.6 billion for its second quarter ended May 31, 2011. Net income for the second quarter of 2010 was $252 million, or $0.32 diluted EPS, on revenues of $3.3 billion.

Commenting on the second quarter, Mr. Arison said, “Our North America brands’ revenue yields increased 3 percent in the second quarter while yields for our Europe, Australia and Asia brands were up slightly (constant dollars), having been affected by the geo-political events which unfolded in the Middle East and North Africa, as well as the earthquake and nuclear disaster in Japan. The revenue yield improvement was more than offset by higher fuel prices which cost the company approximately $150 million, or $0.19 per share.”

Key metrics for the second quarter 2011 compared to the prior year were as follows

• On a constant dollar basis net revenue yields (net revenue per available lower berth day) increased 2.3 percent for 2Q 2011, which was in line with the company’s March guidance, up 1.5 to 2.5 percent. Net revenue yields in current dollars increased 6.0 percent due to favorable currency exchange rates. Gross revenue yields increased 5.8 percent in current dollars.
• Net cruise costs excluding fuel per available lower berth day (“ALBD”) increased 2.7 percent in constant dollars, which was in line with March guidance, up 2.0 to 3.0 percent. Gross cruise costs including fuel per ALBD in current dollars increased 10.3 percent.
• Fuel prices increased 35 percent to $673 per metric ton for 2Q 2011 from $498 per metric ton in 2Q 2010 and was higher than March guidance of $659 per metric ton.

Continuing with its strategic growth initiatives, the company took delivery of its one hundredth  cruise ship ship, Carnival Cruise Lines’ 3,690-passenger Carnival Magic, in late April. Two additional ships, AIDA Cruises’ 2,194-passenger AIDAsol and Seabourn’s 450-passenger Seabourn Quest were also delivered during the 2011 second quarter.

Also, during the second quarter a contract was finalized with Fincantieri for the construction of a 3,611-passenger ship for P&O Cruises (UK) scheduled to be delivered in February 2015. The order marks Carnival Corporation & plc’s first ship delivery for 2015, aligned with the company’s strategy to have two to three ships constructed per year.

2011 Outlook

At this point in time, says Carnival, cumulative advance bookings for the remainder of the year are at higher prices with lower occupancies versus last year. For the last six weeks, booking volumes for the second half of 2011 are well ahead of the prior year for the North America brands, as well as, the Europe, Australia and Asia brands. Pricing for the North America brands remains strong. Pricing for the Europe, Australia and Asia brands has been significantly affected by the prolonged conflict in the Middle East and North Africa regions and earthquake in Japan, which necessitated very close-in deployment changes for more than 300 cruises. The Southern Europe brands were particularly affected with over 40 percent of their deployments in these areas.

As previously announced, the impact of these events are expected to cost the company an additional $0.15 per share in the second half of the year and reduces full year revenue yields by approximately 1.0 percent. The company now expects full year net revenue yields, on a constant dollar basis, to increase 1.5 to 2.5 percent, compared to its March guidance increase of 2.5 to 3.5 percent. Net revenue yields on a current dollar basis are expected to increase 4.0 to 5.0 percent for the full year 2011 compared to 2010.

Mr. Arison noted, “Our North America brands continue to perform well, benefiting from the gradual economic recovery, with strong yield growth expected in the second half of the year. We expect lower yields for our Europe, Australia and Asia segment in the second half of 2011 as a result of the significant deployment changes in Europe. Despite the considerable challenges we have faced this year, the long-term fundamentals of our business remain sound.”

The company continues to expect net cruise costs excluding fuel per ALBD for the full year 2011 to be flat to up 1.0 percent on a constant dollar basis, which is in line with its March guidance.

Taking all the above factors into consideration, the company now forecasts full year 2011 fully diluted earnings per share to be in the range of $2.40 to $2.50, compared to 2010 earnings of $2.47 per share. Based on the current spot prices for fuel, fuel costs for the full year 2011 are now expected to increase $515 million compared to 2010, costing an additional $0.65 per share.

Third Quarter 2011

Third quarter constant dollar net revenue yields are expected to increase 1.0 to 2.0 percent (up 5.5 to 6.5 percent on a current dollar basis) compared to the prior year. Net cruise costs excluding fuel per ALBD for the third quarter are expected to be 2.5 to 3.5 percent higher on a constant dollar basis (up 7.0 to 8.0 percent on a current dollar basis) compared to prior year. Fuel costs for the third quarter are expected to increase $170 million compared to the prior year, costing an additional $0.21 per share.

Based on the above factors and using current fuel prices and currency exchange rates, the company expects fully diluted earnings for the third quarter 2011 to be in the range of $1.60 to $1.64 per share, compared to $1.62 per share in 2010.

June 21, 2011